WeWork's $20 Billion Office Party: The Crazy Bet That Could Change How The World Does Business

"I told Adam not to be proud that WeWork was growing organically without a large sales force or spending big marketing dollars," Son says. "Make it ten times bigger than your original plan. If you think in that manner, the valuation is cheap." How cheap? "It can be worth a few hundred billion dollars."

THE CRAZIEST ONE OF ALL would seem to be Son, once you try to figure out exactly what he's valuing at $20 billion--a figure exceeded only by Uber and Airbnb among U.S. startups (digital intelligence outfit Palantir has a similar valuation to WeWork). It's an office company ... that doesn't own any offices. Like Uber and Airbnb, WeWork is essentially a middleman, renting space from others at whole-sale and then upcharging for cool design, flexible leases and built-in services like internet, reception, mailroom and cleaning. (Free coffee and beer, too.) WeWork's value-added is office culture--at massive scale. Starting with one New York City space in 2010, the company now has 163 locations--a figure that has tripled since the end of 2015--spread across 52 cities worldwide. Its 2,900-plus employees manage 10 million square feet for 150,000 members who pay anywhere from $220 a month for the use of a common area to $22,000 for a 50-person office.

"No one is investing in a co-working company worth $20 billion. That doesn't exist," Neumann says. "Our valuation and size today are much more based on our energy and spirituality than it is on a multiple of revenue."

That's most certainly true--the company is on track to do an estimated $1.3 billion in revenue in 2017 (with operating margins around 30%), giving it a price-to-sales ratio higher than what a more conventional growth company might garner as a multiple of cash flow. But this "energy and spirituality" premium seems high no matter how you measure it. Son's $20 billion valuation translates to $133,333 per member (even though the ability to walk away at any time is part of the model), each of whom generates $8,000 a year on average. It values each foot of space it rents at $2,000, compared with, say, $325 to buy Class A real estate in a tech hub like Austin.

Even before Son came along, the likes of Benchmark, Fidelity, Goldman Sachs and JPMorgan had put $1.55 billion into WeWork based on the idea that traditional metrics don't reflect its disruptive model. "They create a vibrant and fun environment and fill it with excited people to energize the work experience," says Benchmark's Bruce Dunlevie. Jamie Dimon, JPMorgan's CEO, calls WeWork a way of life: "They've built a hybrid hospitality-and-tech company that's entirely different from anything in real estate."

Jamel Toppin (Forbes)

Cubicle Killers: Adam Neumann (L) and Miguel McKelvey

But servicing startups will get you only so far. Their bet--and especially Son's--is that WeWork can change how pretty much everyone experiences an office. Over the past couple years, WeWork has signed up companies like GM, GE, Samsung, Salesforce, Bank of America and Bacardi. Earlier this year, WeWork allotted an entire building in Greenwich Village to IBM, and now big companies generate 30% of monthly sales.

"It's now a core real estate solution for our people," says Matt Donovan, who runs marketing for Microsoft's Office 365 brand and has put more than 300 employees into WeWork locales. "They get access to different locations, plus insight and feedback from other WeWork members who use our products."